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Chemed Reports First-Quarter 2012 Results

Stocks in this article: CHE

Chemed operates in the residential and commercial plumbing and drain cleaning industry under the brand name Roto-Rooter. Roto-Rooter provides plumbing and drain service through company-owned branches, independent contractors and franchisees in the United States and Canada. Roto-Rooter also has licensed master franchisees in Indonesia, Singapore, Japan, and the Philippines.

This press release contains information about Chemed’s EBITDA, Adjusted EBITDA and Adjusted Diluted EPS, which are not measures derived in accordance with GAAP and which exclude components that are important to understanding Chemed’s financial performance. In reporting its operating results, Chemed provides EBITDA, Adjusted EBITDA and Adjusted Diluted EPS measures to help investors and others evaluate the Company’s operating results, compare its operating performance with that of similar companies that have different capital structures and evaluate its ability to meet its future debt service, capital expenditures and working capital requirements. Chemed’s management similarly uses EBITDA, Adjusted EBITDA and Adjusted Diluted EPS to assist it in evaluating the performance of the Company across fiscal periods and in assessing how its performance compares to its peer companies. These measures also help Chemed’s management to estimate the resources required to meet Chemed’s future financial obligations and expenditures. Chemed’s EBITDA, Adjusted EBITDA and Adjusted Diluted EPS should not be considered in isolation or as a substitute for comparable measures calculated and presented in accordance with GAAP. We calculated Adjusted EBITDA Margin by dividing Adjusted EBITDA by service revenue and sales. A reconciliation of Chemed’s net income to its EBITDA, Adjusted EBITDA and Adjusted Diluted EPS is presented in the tables following the text of this press release.

Forward-Looking Statements

Certain statements contained in this press release and the accompanying tables are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "hope," "anticipate," "plan" and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Chemed does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause Chemed's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties arise from, among other things, possible changes in regulations governing the hospice care or plumbing and drain cleaning industries; periodic changes in reimbursement levels and procedures under Medicare and Medicaid programs; difficulties predicting patient length of stay and estimating potential Medicare reimbursement obligations; challenges inherent in Chemed's growth strategy; the current shortage of qualified nurses, other healthcare professionals and licensed plumbing and drain cleaning technicians; Chemed’s dependence on patient referral sources; and other factors detailed under the caption "Description of Business by Segment" or "Risk Factors" in Chemed’s most recent report on form 10-Q or 10-K and its other filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved.

 
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)(unaudited)
 
  Three Months Ended March 31,
2012   2011
Service revenues and sales $ 352,943   $ 330,918  
Cost of services provided and goods sold 257,445 237,458
Selling, general and administrative expenses (aa) 53,167 55,654
Depreciation 6,241 6,288
Amortization   1,113     970  
Total costs and expenses   317,966     300,370  
Income from operations 34,977 30,548
Interest expense (3,617 ) (3,244 )
Other income/(expense)--net (bb)   2,095     2,102  
Income before income taxes 33,455 29,406
Income taxes   (13,010 )   (11,305 )
Net income $ 20,445   $ 18,101  
 
Earnings Per Share
Net income $ 1.08   $ 0.86  
Average number of shares outstanding   18,958     21,055  
 
Diluted Earnings Per Share
Net income $ 1.06   $ 0.84  
Average number of shares outstanding   19,353     21,568  
 
   
(aa) Selling, general and administrative ("SG&A") expenses comprise (in thousands):
Three Months Ended March 31,
2012 2011

SG&A expenses before long-term incentive compensation and the impact of market value gains of deferred compensation plans

$ 51,034 $ 50,578
Market value gains on assets held in deferred compensation trusts 2,133 2,064
Long-term incentive compensation   -     3,012  
Total SG&A expenses $ 53,167   $ 55,654  
 
(bb) Other income/(expense)--net comprises (in thousands):
Three Months Ended March 31,
2012 2011
Market value gains on assets held in deferred compensation trusts $ 2,133 $ 2,064
Loss on disposal of property and equipment (81 ) (21 )
Interest income 51 61
Other   (8 )   (2 )
Total other income/(expense)--net $ 2,095   $ 2,102  
 

         
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
 
March 31,
2012 2011
Assets
Current assets
Cash and cash equivalents $ 34,214 $ 59,745
Accounts receivable less allowances 110,656 92,912
Inventories 8,468 7,967
Current deferred income taxes 13,725 13,352
Prepaid income taxes 637 -
Prepaid expenses   9,576     9,538  
Total current assets 177,276 183,514
Investments of deferred compensation plans held in trust 35,055 31,897
Properties and equipment, at cost less accumulated depreciation 88,579 79,146
Identifiable intangible assets less accumulated amortization 57,941 57,579
Goodwill 461,064 458,434
Other assets   11,568     12,158  
Total Assets $ 831,483   $ 822,728  
 
Liabilities
Current liabilities
Accounts payable $ 52,999 $ 38,249
Income taxes 13,334 8,250
Accrued insurance 37,305 35,511
Accrued compensation 35,834 39,469
Other current liabilities   15,724     14,457  
Total current liabilities 155,196 135,936
Deferred income taxes 27,256 24,164
Long-term debt 168,759 161,054
Deferred compensation liabilities 34,186 31,437
Other liabilities   11,629     6,267  
Total Liabilities   397,026     358,858  
Stockholders' Equity
Capital stock 31,063 30,709
Paid-in capital 404,546 379,167
Retained earnings 564,130 488,439
Treasury stock, at cost (567,279 ) (436,427 )
Deferred compensation payable in Company stock   1,997     1,982  
Total Stockholders' Equity   434,457     463,870  
Total Liabilities and Stockholders' Equity $ 831,483   $ 822,728  
 

   
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)(unaudited)
       
Three Months Ended
March 31,
2012 2011
Cash Flows from Operating Activities
Net income $ 20,445 $ 18,101

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 7,354 7,258
Provision for deferred income taxes (3,397 ) 814
Provision for uncollectible accounts receivable 2,245 2,111
Amortization of discount on convertible notes 1,975 1,846
Stock option expense 1,938 1,933
Noncash long-term incentive compensation - 2,595

Changes in operating assets and liabilities, excluding amounts acquired in business combinations:

Decrease/(increase) in accounts receivable (34,949 ) 17,923
Decrease/(increase) in inventories 200 (239 )
Decrease in prepaid expenses 1,833 747
Decrease in accounts payable and other current liabilities (3,894 ) (12,137 )
Increase in income taxes 15,532 9,739
Increase in other assets (3,654 ) (3,667 )
Increase in other liabilities 5,241 3,227
Excess tax benefit on share-based compensation (797 ) (1,895 )
Other sources   309     185  
Net cash provided by operating activities   10,381     48,541  
Cash Flows from Investing Activities
Capital expenditures (12,018 ) (6,173 )
Business combinations (415 ) -

Other sources/(uses)

  311     (109 )
Net cash used by investing activities   (12,122 )   (6,282 )
Cash Flows from Financing Activities
Dividends paid (3,072 ) (2,977 )
Purchases of treasury stock (1,431 ) (24,260 )

Proceeds from issuance of capital stock

1,042 3,647
Excess tax benefit on share-based compensation 797 1,895
Increase/(decrease) in cash overdrafts payable 226 (8,310 )
Debt issuance costs - (2,708 )
Other sources   312     282  
Net cash used by financing activities   (2,126 )   (32,431 )
Increase/(Decrease) in Cash and Cash Equivalents (3,867 ) 9,828
Cash and cash equivalents at beginning of year   38,081     49,917  
Cash and cash equivalents at end of period $ 34,214   $ 59,745  
 

   
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(in thousands)(unaudited)
 
            Chemed
VITAS Roto-Rooter Corporate Consolidated

 2012

Service revenues and sales $ 260,847   $ 92,096   $ -   $ 352,943  
Cost of services provided and goods sold 205,620 51,825 - 257,445
Selling, general and administrative expenses (a) 19,748 26,153 7,266 53,167
Depreciation 4,025 2,085 131 6,241
Amortization   490     154     469     1,113  
Total costs and expenses   229,883     80,217     7,866     317,966  
Income/(loss) from operations 30,964 11,879 (7,866 ) 34,977
Interest expense (a) (62 ) (108 ) (3,447 ) (3,617 )
Intercompany interest income/(expense) 755 395 (1,150 ) -
Other income/(expense)—net   (31 )   (20 )   2,146     2,095  
Income/(loss) before income taxes 31,626 12,146 (10,317 ) 33,455
Income taxes (a)   (11,999 )   (4,650 )   3,639     (13,010 )
Net income/(loss) $ 19,627   $ 7,496   $ (6,678 ) $ 20,445  
 

 2011

Service revenues and sales $ 235,673   $ 95,245   $ -   $ 330,918  
Cost of services provided and goods sold 184,300 53,158 - 237,458
Selling, general and administrative expenses (b) 18,711 26,740 10,203 55,654
Depreciation 4,167 1,984 137 6,288
Amortization   483     132     355     970  
Total costs and expenses   207,661     82,014     10,695     300,370  
Income/(loss) from operations 28,012 13,231 (10,695 ) 30,548
Interest expense (b) (48 ) (64 ) (3,132 ) (3,244 )
Intercompany interest income/(expense) 1,213 639 (1,852 ) -
Other income/(expense)-net   30     (9 )   2,081     2,102  
Income/(loss) before income taxes 29,207 13,797 (13,598 ) 29,406
Income taxes (b)   (11,082 )   (5,286 )   5,063     (11,305 )
Net income/(loss) $ 18,125   $ 8,511   $ (8,535 ) $ 18,101  

The "Footnotes to Financial Statements" are integral parts of this financial information.

     
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATING SUMMARY OF EBITDA
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(in thousands)(unaudited)
        Chemed
VITAS Roto-Rooter Corporate Consolidated

 2012

Net income/(loss) $ 19,627 $ 7,496 $ (6,678 ) $ 20,445
Add/(deduct):
Interest expense 62 108 3,447 3,617
Income taxes 11,999 4,650 (3,639 ) 13,010
Depreciation 4,025 2,085 131 6,241
Amortization   490     154     469     1,113  
EBITDA 36,203 14,493 (6,270 ) 44,426
Add/(deduct):
Legal expenses of OIG investigation 71 - - 71
Acquisition expenses - 15 - 15
Expenses of class action litigation - 647 - 647
Stock option expense - - 1,938 1,938
Advertising cost adjustment (c) - (706 ) - (706 )
Interest income (30 ) (8 ) (13 ) (51 )
Intercompany interest income/(expense)   (755 )   (395 )   1,150     -  
Adjusted EBITDA $ 35,489   $ 14,046   $ (3,195 ) $ 46,340  
 

 2011

Net income/(loss) $ 18,125 $ 8,511 $ (8,535 ) $ 18,101
Add/(deduct):
Interest expense 48 64 3,132 3,244
Income taxes 11,082 5,286 (5,063 ) 11,305
Depreciation 4,167 1,984 137 6,288
Amortization   483     132     355     970  
EBITDA 33,905 15,977 (9,974 ) 39,908
Add/(deduct):
Legal expenses of OIG investigation 511 - - 511
Acquisition expenses 64 6 - 70
Expenses of class action litigation - 495 - 495
Long-term incentive compensation - - 3,012 3,012
Stock option expense - - 1,933 1,933
Advertising cost adjustment (c) - (250 ) - (250 )
Interest income (37 ) (7 ) (17 ) (61 )
Intercompany interest income/(expense)   (1,213 )   (639 )   1,852     -  
Adjusted EBITDA $ 33,230   $ 15,582   $ (3,194 ) $ 45,618  

The "Footnotes to Financial Statements" are integral parts of this financial information.

   
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
RECONCILIATION OF ADJUSTED NET INCOME
(in thousands, except per share data)(unaudited)
         
Three Months Ended March 31,
2012 2011
Net income as reported $ 20,445 $ 18,101
 
Add/(deduct):

After-tax additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

1,225 1,132
After-tax stock option expense 1,224 1,223
After-tax cost of expenses of class action litigation 393 301
After-tax cost of legal expenses of OIG investigation 44 317
After-tax cost of acquisition expenses 9 44
After-tax cost of long-term incentive compensation   -   1,880
Adjusted net income $ 23,340 $ 22,998
 
 
Earnings Per Share As Reported
Net income $ 1.08 $ 0.86
Average number of shares outstanding   18,958   21,055
Diluted Earnings Per Share As Reported
Net income $ 1.06 $ 0.84
Average number of shares outstanding   19,353   21,568
 
 
Adjusted Earnings Per Share
Net income $ 1.23 $ 1.09
Average number of shares outstanding   18,958   21,055
Adjusted Diluted Earnings Per Share
Net income $ 1.21 $ 1.07
Average number of shares outstanding   19,353   21,568

The "Footnotes to Financial Statements" are integral parts of this financial information.

   
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
OPERATING STATISTICS FOR VITAS SEGMENT
(unaudited)        
     
Three Months Ended March 31,
OPERATING STATISTICS 2012 2011
Net revenue ($000) (d)
Homecare $ 186,597 $ 168,652
Inpatient 29,152 27,386
Continuous care   42,521   38,625
Total before Medicare cap allowance $ 258,270 $ 234,663
Medicare cap allowance   2,577   1,010
Total $ 260,847 $ 235,673

Net revenue as a percent of total before Medicare cap allowance

Homecare 72.2 % 71.8 %
Inpatient 11.3 11.7
Continuous care   16.5   16.5
Total before Medicare cap allowance 100.0 100.0
Medicare cap allowance   1.0   0.4
Total   101.0 % 100.4 %
Average daily census ("ADC") (days)
Homecare 9,613 8,833
Nursing home   2,986   3,033
Routine homecare 12,599 11,866
Inpatient 472 450
Continuous care   632   603
Total   13,703   12,919
 
Total Admissions 16,322 15,798
Total Discharges 16,196 15,552
Average length of stay (days) 82.4 78.9
Median length of stay (days) 14.0 13.0
ADC by major diagnosis
Neurological 34.2 % 34.0 %
Cancer 17.9 17.9
Cardio 11.6 11.8
Respiratory 6.6 6.7
Other   29.7   29.6
Total   100.0 % 100.0 %
Admissions by major diagnosis
Neurological 19.6 % 19.5 %
Cancer 32.1 31.7
Cardio 11.8 11.1
Respiratory 8.7 9.1
Other   27.8   28.6
Total   100.0 % 100.0 %
Direct patient care margins (e)
Routine homecare 50.4 % 51.1 %
Inpatient 14.1 13.0
Continuous care 19.9 20.5
Homecare margin drivers (dollars per patient day)
Labor costs $ 57.76 $ 55.38
Drug costs 8.33 7.97
Home medical equipment 6.82 6.66
Medical supplies 2.75 2.76
Inpatient margin drivers (dollars per patient day)
Labor costs $ 314.34 $ 306.66
Continuous care margin drivers (dollars per patient day)
Labor costs $ 569.54 $ 544.16
Bad debt expense as a percent of revenues 0.8 % 0.6 %
Accounts receivable --
Days of revenue outstanding- excluding unapplied Medicare payments 36.6 55.3
Days of revenue outstanding- including unapplied Medicare payments 30.8 29.1

The "Footnotes to Financial Statements" are integral parts of this financial information.

       
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
FOOTNOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011
(unaudited)
 
 
(a)

Included in the results of operations for the three months ended March 31, 2012, are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands):

VITAS

Roto- Rooter

Corporate Total
Selling, general and administrative expenses
Legal expenses of OIG investigation $ (71 ) $ - $ - $ (71 )
Acquisition expenses - (15 ) - (15 )
Expenses of class action litigation - (647 ) - (647 )
Stock option expense - - (1,938 ) (1,938 )
Interest expense

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

  -     -     (1,935 )   (1,935 )
Pretax impact on earnings (71 ) (662 ) (3,873 ) (4,606 )
Income tax benefit/(charge) on the above   27     260     1,424     1,711  
After-tax impact on earnings $ (44 ) $ (402 ) $ (2,449 ) $ (2,895 )
 
(b)

Included in the results of operations for the three months ended March 31, 2011, are the following significant credits/(charges) which may not be indicative of ongoing operations (in thousands):

VITAS

Roto- Rooter

Corporate Total
Selling, general and administrative expenses
Legal expenses of OIG investigation $ (511 ) $ - $ - $ (511 )
Acquisition expenses (64 ) (6 ) - (70 )
Expenses of class action litigation - (495 ) - (495 )
Long-term incentive compensation - - (3,012 ) (3,012 )
Stock option expense - - (1,933 ) (1,933 )
Interest expense

Additional interest expense resulting from the change in accounting for the conversion feature of the convertible notes

  -     -     (1,790 )   (1,790 )
Pretax impact on earnings (575 ) (501 ) (6,735 ) (7,811 )
Income tax benefit/(charge) on the above   218     196     2,500     2,914  
After-tax impact on earnings $ (357 ) $ (305 ) $ (4,235 ) $ (4,897 )
 
(c)

Under Generally Accepted Accounting Principles ("GAAP"), the Roto-Rooter segment expenses all advertising, including the cost of telephone directories, immediately upon the initial release of the advertising. Telephone directories are generally in circulation 12 months. If a directory is in circulation for a time period greater or less than 12 months, the publisher adjusts the directory billing for the change in billing period. The timing of when a telephone directory is published can and does fluctuate significantly on a quarterly basis. This "direct expensing" results in significant fluctuations in quarterly advertising expense. In the first quarters of 2012 and 2011, GAAP advertising expense for Roto-Rooter totaled $5,624,000 and $5,918,000, respectively. If the expense of the telephone directories were spread over the periods they are in circulation, advertising expense for the first quarters of 2012 and 2011 would total $6,330,000 and $6,168,000, respectively.

 
(d)

VITAS has 8 large (greater than 450 ADC), 16 medium (greater than 200 but less than 450 ADC) and 28 small (less than 200 ADC) hospice programs. Of VITAS' 35 unique Medicare provider numbers, 31 provider numbers have a Medicare cap cushion of 10% or greater during the first six months of the Medicare cap year; two provider numbers have a Medicare cap cushion between 5% and 10%; and two provider numbers have a cap cushion between 0% and 5%.

 
(e) Amounts exclude indirect patient care and administrative costs, as well as Medicare Cap billing limitation.
 




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